Research Paper on Student Loans

Student loans present the possibility for students to pay for their tuition and other expenses while in education. These loans are characterized by low interest rates and specific repayment schedule, which may be deferred.

Federal Student Loans are divided into two main types:

  • Federal Family Education Loan Program, in which credits are given by private legal entities, such as banks, or other financial institutions. The federal government acts as guarantor of the return of these loans.
  • Federal Direct Student Loan Program, which is controlled by Direct Lending School. This type of loan is issued by the government directly to students and parents.

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In turn, the Stafford loans are divided on a subsidized, the interest on which shall repay the government, and unsubsidized, the interest on which is paid by the borrower. In this case, a student has the opportunity to defer the repayment until his graduation. Any student can take advantage of subsidized credit. However, for a student to obtain a subsidized loan, he must certify that he really needs financial support from the state.

Students, who live at the parents expense, are able to obtain credit in the following amounts: for the first year up to 2,625 USD, the second year – 3,500 USD, and each next year up to 5,500 USD. Students with jobs have the opportunity to receive an additional loan of 4,000 USD for the first two years and 5,000 USD in subsequent years of education. For graduate students there exists an annual opportunity to loan 18,500 USD, however, only 8,500 USD of this amount are subsidized.

The interest rate on student loans are different. It is calculated by adding the 91-day rate of return on Treasury bills (T-bill rate) and 1.7% during a year of study. At the graduation there is another 0.6% rate addition. The interest rate is set annually in a range not exceeding 8.25%. All lenders make loans at a flat rate, nevertheless, each of them can individually offer discounts for repayment by installments and electronic system.

Students and graduate students having the difficult financial situation can get a Perkins soft loan. In this case, the creditor is the institution that manages the funds allocated for this purpose from the federal treasury. Since the loan is subsidized, its interest shall be paid by the federal government while student is in education. This loan interest rate is 5%, maturity is 10 years. In addition to that, the repayment can be deferred for 9 months. The amount of the loan is defined by the school department of financial assistance.

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